[ExI] Greed + Incompetence + A Belief in Market Efficiency = Disaster

[BillK]

On Thu, Jan 29, 2009 at 10:55 PM, painlord2k wrote:
> Market are not perfect because they are run by human beings.
> Like governments.
> But market are adaptable and the loop is very short, so the negative
> feedback is able to function better. People doing bad choices pay for them
> so they learn to don't do them again. The same is for good choices.
>


That's a restatement of the 'efficient' market theory and it just
isn't what happens in real life. Nice and neat in theory but nothing
to do with what actually happens.

Booms and busts happen because of the human 'herd' mentality. The
recent boom had everybody piling on because they didn't want to miss
out on the profits everyone else appeared to be making. Like a ponzi
scheme, it was great for those who got in early and got out before the
boom collapsed. (Also great for the facilitators who just sat there
raking in commissions on every trade).

The point is they were all making good choices on the way up and the
feedback encouraged more of the same behavior. Then the house of cards
fell in.


BillK